Construction Product Supply Expected To Remain Tight Near Term

April 8, 2021

Strong demand and recent supply challenges including the Suez Canal blockage are adding pressure to an already tight market.

Construction crew working at jobsite

The Construction Leadership Council ("CLC") in the United Kingdom released a statement this week noting construction product availability is tight, and it is set to further tighten given supply challenges.

As we wrote last month, global commodities have risen sharply over the past nine months driven by fiscal stimulus and supply challenges. The tight supply and demand environment extends beyond agricultural commodities — we see it in construction and building products as well.

CLC noted it expects the conditions to worsen before they get better. This indicates that we could see prices continue to rise through 2021. The issues seem to be widespread — the statement cited plaster, plasterboard, timber, steel, roof tiles, bricks, and plumbing and electrical items.

Higher steel prices will likely continue to support used and new construction equipment prices near term. Steel is a primary component and cost of construction equipment. As manufacturers' costs rise they will need to increase prices to cover higher input costs.

In the past large construction equipment manufacturers such as Caterpillar, John Deere, Case, Volvo Construction Equipment and Terex hedged portions of their steel purchases. The hedging is "locking in" prices for the future, which allowed them to gradually raise prices for their customers when steel prices rose sharply in the past.

CLC's Full Statement

Demand for construction products remains high both in the UK and globally and is set to continue throughout 2021 in every sector. Unfortunately, this means the availability issues we are currently experiencing are likely to worsen before they improve.

While supplies of plaster and plasterboard are much improved on last year, almost every other product group is experiencing longer lead times and, as a consequence, higher prices.

Plastics (PE and PP), cement and aggregates have joined existing lists of products in short supply, including timber, steel, roof tiles, bricks and imported products such as screws, fixing, plumbing items, sanitaryware, shower enclosures, electrical products and appliances.

Prior to the temporary blockage of the Suez Canal, we were seeing a slight lowering of both container costs and delivery times of these imported goods. We anticipate that this will continue once the effect of the temporary closure works through.

Imports of timber will be an issue for the foreseeable future. Not enough timber is being produced to meet world demand. Added to this, other countries are prepared to pay more to secure their supply, pushing the UK lower down the pecking order.

Steel is also experiencing strong global demand. While supply and demand are likely to rebalance within the next few months, global dynamics will continue to drive prices up.

Raw material shortages constraining polymer supplies are causing production problems for plastics (lower ground drainage etc). Coatings manufacturers are also experiencing raw material shortages beyond their control, at a time when demand is particularly high. These issues will continue for at least 2-3 months.

All users should plan for increased demand and longer delays, keep open lines of communication with their suppliers and order early for future projects.

The CLC’s product availability group will continue to monitor the situation. The CPA and the BMF – who jointly chair the group – produce quarterly forecasts on market activity which is helping manufacturers to plan output.


'Our customers are worried about the Suez Canal blockage' by BBC
Suez Canal blocked after huge container ship wedged across it - BBC News

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